Solid Company manufactures and sells specialty items. The following representati

Question

Solid Company manufactures and sells specialty items. The following representative direct labor-­ hours and production costs are provided for a four-­month period:

Month Hrs. Direct Labor Production Costs January 3,000 $45,000 February 4,000 52,500 March 7,000 81,000 April 4,000 45,000 Total 18,000 $223,500 a = fixed production costs per month b = variable production costs per direct labor hour n = number of months X = direct labor-­hours per month Y equals total monthly production costs Using the symbols above, indicate the cost estimation equation based on number of direct labor hours per month, and calculate total monthly production costs for May using the high-­low method, assuming the direct labor hours for May are expected to be 4,500.

Explanation / Answer

C = a + bX

VARIABLE COST PER UNIT = production cost at highest labour hours-production cost at lowest labour hours

       

   highest labour hours -   lowest labour hours

= (81000-45000) / (7000-3000)

= 36000/4000

= 9 per unit

fixed cost (march) = 81000 - (7000*9)

= 18000

TOTAL MONTHLY PRODUCTION COSTS FOR MAY = a + bX

= 18000 + (9*4500)

= 18000+40500

= $58500

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.